Walt Disney World Takes a Risk With New Time Shares

By JASON GARCIATHE ORLANDO SENTINEL

Thursday

Jun 11, 2009 at 7:16 PM

The three new Central Florida properties - along with 50 new units that will open later this year at Disneyland in Anaheim, Calif. - constitute the most ambitious expansion yet for Disney Vacation Club.

ORLANDO | Inside Kidani Village, the Walt Disney World time share that opened recently, the domed lobby is designed to evoke a thatched African hut. At the Treehouse Villas, the "cabin casual" theme includes exposed-wood support beams and refrigerators done in a dark, textured brown. And at Bay Lake Tower, which opens this summer, floor-to-ceiling windows offer views of Cinderella Castle and Space Mountain.

The three new Central Florida properties - along with 50 new units that will open later this year at Disneyland in Anaheim, Calif. - constitute the most ambitious expansion yet for Disney Vacation Club, Disney's 17-year-old time-share unit.

It may also be the riskiest.

The growth spurt comes as Vacation Club, like many other units across Walt Disney Co.'s media-and-entertainment empire, is being buffeted by the global recession and credit squeeze. Sales at the Celebration-based time-share business fell during the three months that ended March 28 - the first quarterly decline Disney has recorded at its time-share arm in at least 3 1/2 years.

That has added to the pressure at Disney's worldwide theme-park division, which has relied on Vacation Club to help fuel its profit growth in recent years. The time-share unit generated roughly 10 percent of Walt Disney Parks and Resorts' total operating profit during the company's most recent fiscal year, or an estimated $190 million.

"The parks segment has got a lot of macroeconomic head winds. And the Vacation Club is just another one of those," said Martin Pyykkonen, an analyst at Wunderlich Securities.

A spokeswoman for Disney Vacation Club would not discuss the unit's performance. But Disney executives do not appear overly concerned: Disney Co. Chief Financial Officer Tom Staggs recently said the company was "pleased with the pace of sales" at Vacation Club, despite the falling revenue.

A variety of things are squeezing Disney Vacation Club.

Among the biggest: the nation's still-tight credit markets. Last December, with debt markets roiling, Disney was unable to renew a credit facility it had been using to sell bundles of its time-share mortgages to investors, a practice known as "securitization."

During Disney's second fiscal quarter last year, Vacation Club sold $42 million worth of mortgages. It didn't sell any during this year's second quarter.

Vacation Club has been hurt by challenging comparisons from a year ago. The resorts the company is building now, for example, are more-upscale products that carry higher construction costs. Disney has stopped selling contract extensions to owners of its 761-room Old Key West Resort, which buoyed sales last year.

Rental revenue has also dropped. Disney has included vacant Vacation Club units with its hotel rooms in discount packages for guests who book four nights and get three more free.

Disney World's per-room hotel revenue, including Vacation Club rentals, sank 17 percent during the second quarter, though average room occupancy rose one percentage point to 89 percent.

Amid those economic conditions, Vacation Club is opening the four new resorts this year, with sales prices starting at about $18,000, plus a monthly maintenance fee. It is the first time Disney has been selling interests in four time shares at once.

In hopes of a publicity boost, Disney invited a group of about 20 reporters, photographers and bloggers on a tour of its new Central Florida properties. Although the resorts are opening within 100 days of one another, each is unique:

At Kidani Village, which will eventually have 340 units, walls are decorated with African proverbs and artifacts such as a Bamileke king's belt and Cameroon royal drinking horns. Most rooms overlook a re-created savanna complete with giraffes, zebras, ostriches and other wildlife.

The 60 Treehouse Villas stand on pedestals and stilts in a forested wetland. The octagonal suites replace earlier lodging originally built in 1975, and designers say the new units use 70 percent less impervious concrete.

Bay Lake Tower rises 15 stories just outside the gates of the Magic Kingdom and is linked to Disney's Contemporary Resort by a pedestrian bridge.

The sales pitch centers around the views; the largest suites have windows two stories tall.

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